Urs Meisterhans v GIP Pte Ltd

• Judge: Tay Yong Kwang J
• Judgment Date: 28 September 2010
• Neutral Citation: [2010] SGHC 288
• Citation: [2010] SGHC 288
• Docket Number: Originating Summons No 430 of 2010
• Published date: 05 October 2010
• Hearing Date: 22 July 2010
• Plaintiff Counsel: Balakrishnan Ashok Kumar and Linda Esther Foo (Stamford Law Corporation)
• Date: 28 September 2010
• Defendant Counsel: Sim Kwan Kiat, Mark Cheng, Jonathan Lee and Lim Huay Ching (Rajah & Tann LLP)
• Court: High Court (Singapore)
• Subject Matter: Companies

Tay Yong Kwang J: Introduction

This was an application by the plaintiff for leave, pursuant to section 216A of the Companies Act (Cap 50, 2006 Rev Ed), to commence legal proceedings in the name and on behalf of the defendant against two of its current directors, Mr Huber Marcel Fritz (“Huber”) and Mr Gut Christian Michel (“Christian”) for alleged breaches of fiduciary duties that they owed, as directors, to the defendant.

Background facts Parties to the dispute

The plaintiff is a shareholder and former director in the defendant. He was temporarily taken into custody by Swiss Federal Prosecutors in 2009 to assist the Swiss authorities in some criminal investigations.

The defendant is a Singapore-incorporated company in the business activity of “Business and Management Consultancy Services”. It is exempted by the Monetary Authority of Singapore (“MAS”) from the licensing and business conduct requirements under the Securities and Futures Act (Cap 289, 2006 Rev Ed) (“the SFA”) and its related subsidiary legislation but remains obliged to comply with certain provisions of the SFA as well as guidelines issued by the MAS, including the MAS’s “Guidelines on Fit and Proper Criteria” (“the Guidelines”). The defendant’s sole business is the management of a private energy fund, Stellar Energy Fund (“SEF”), whose trustees are Portcullis Trust (Singapore) Ltd (“the Trustees”). After the plaintiff’s removal as one of its directors, the defendant currently has four directors, namely Huber, Christian, one Mr Rainer Jonas (“Jonas”) and one Mr Tan Kim Guan (“Tan”). It also has four shareholders, namely the plaintiff, Huber, Christian, and one Mrs Anjuta Aigner (“Mrs Aigner”), whose shareholdings are 24%, 26%, 24% and 26% respectively. Jonas and Tan do not own shares in the defendant.

Background to the dispute

The plaintiff was one of the defendant’s directors until his removal during an Extraordinary Meeting of the defendant’s shareholders held on 13 August 2009. In an email dated 27 February 2010 sent jointly by three of the defendant’s directors, namely, Huber, Christian and Jonas, the defendant explained the reasons behind the plaintiff’s removal. The defendant said that its directors decided that it would be in the defendant’s best interests to remove the plaintiff as its director because first, he had been incarcerated by the Swiss authorities. As the defendant was an exempted entity under the SFA, it was obliged to ensure that all of its directors satisfied the “Fit and Proper Test” set out in the Guidelines. The Guidelines provide that in deciding whether a person was fit and proper, MAS would take into account whether the director or proposed director was the subject of any investigations which may lead to criminal proceedings or investigations by regulatory authorities or government agencies. The defendant said that its directors had requested from the plaintiff, on numerous occasions, details of the investigations by the Swiss authorities but the plaintiff had refused and/or omitted to provide the required details. Save for the plaintiff’s assertions, the defendant said that there was no independent evidence that the investigations were no longer going on.

Second, the defendant said that in 2009, Hycarbex Asia Pte Ltd (“Hycarbex Asia”) raised certain allegations of wrongdoings against the plaintiff. The plaintiff informed Huber that those allegations were without merit and were not of a criminal nature and further volunteered to resign immediately as a director of the defendant if any such allegations were raised against him. However, the defendant’s directors subsequently discovered that, as at the date of the plaintiff’s representations to Huber, Hycarbex Asia had already proffered criminal charges against the plaintiff before the Swiss Courts.

Third, subsequent to the plaintiff’s removal as a director of the defendant, the other directors uncovered clear evidence that the plaintiff had acted in breach of his fiduciary duties to the defendant while he was its director. These breaches included entry into unauthorised foreign exchange transactions without the approval of the defendant’s board of directors and in breach of the defendant’s internal guidelines, as well as a failure to disclose his personal interest in Hycarbex Asia. Further, after he was removed as a director, the plaintiff continued to take steps which were clearly detrimental to the defendant and SEF. Such actions included the continual holding out of himself as a representative of the defendant and/or SEF even though he was no longer a director and wrongfully interfering in the affairs of the defendant and SEF, as well as sending defamatory letters to the Trustees.

The plaintiff’s case

The plaintiff relied on three main grounds in support of his application for leave pursuant to section 216A of the Companies Act. Apart from the allegation that he had been wrongfully removed as a director of the defendant’s, the plaintiff’s two other allegations concerned Huber’s and Christian’s alleged mismanagement of SEF’s investments to the detriment of the defendant’s financial condition. By conducting the defendant’s affairs recklessly and/or negligently, the plaintiff argued, Huber and Christian had failed to act in the defendant’s best interests. They should therefore be held accountable to the defendant’s shareholders like the plaintiff.

The first allegation involved an alleged lack of transparency on the part of the defendant’s directors concerning the performance of SEF and the defendant. The plaintiff alleged that the defendant’s directors had failed to provide timely updates on SEF’s Net Asset Value (“NAV”) to SEF’s investors. He also argued that the defendant’s management refused to provide him with information on SEF’s NAV even though he was a shareholder of the defendant.

The second allegation concerned the directors’ alleged mismanagement of certain key investments of SEF, in particular SEF’s loans to REN AG (“the REN Loan”) and Hycarbex Asia (“the Hycarbex Loan”). The former was a loan of EUR 3 million which SEF made around August 2006 to REN AG, a Swiss company. This loan was guaranteed by one Mr Werner Kindermann (“Kindermann”) (“the Kindermann Guarantee”), who was the beneficial owner of the entire share capital in REN AG. The latter was a loan first extended to Hydrotour Enerji Ltd Sti (“Hydrotour”), a Turkish company, in 2007 but later restructured in 2008 such that Hycarbex Asia, a Singapore-incorporated company, substituted Hydrotour as the principal borrower. The restructured loan was secured by, among other things, share pledges by two of Hycarbex Asia’s shareholders (the “Share Pledge”), and a corporate guarantee by Hycarbex American Energy Inc, which was a wholly-owned subsidiary of Hycarbex Asia (“the Hycarbex Guarantee”).

The plaintiff argued that Huber’s and Christian’s actions made it highly unlikely that SEF would recover any value from these investments. In respect of the REN Loan, it was the plaintiff’s case that the defendant’s directors had failed to act promptly to enforce Kindermann’s obligations under the Kindermann Guarantee when REN AG was put into liquidation on or around 7 November 2008, despite his repeated reminders to the defendant’s directors that the Kindermann Guarantee was only enforceable one year from the date of REN AG’s liquidation (i.e. by 7 November 2009). Having failed to commence proceedings against Kindermann by that date, the defendant/SEF’s claim became time-barred. The plaintiff also argued that given the dismissal of those proceedings, SEF had little prospect of recovering any value from the REN Loan.

As for the Hycarbex Loan, the plaintiff argued that Huber and Christian had mismanaged this loan. Among other things, he alleged that they had failed to perfect the Share Pledge as delivery of the pledged shares was not taken. He also alleged that Christian had demanded an unreasonable amount of collateral in return for an extension of time for repayment of the loan, including personal guarantees by Hycarbex Asia’s shareholders and the pledging of all of their Hycarbex Asia shares. This led to Hycarbex Asia’s decision to default on the Hycarbex Loan, rather than continue with the negotiations. The plaintiff also argued that Huber and Christian caused the defendant to make grossly inadequate provisions for the REN Loan and Hycarbex Loan, resulting in the delay of SEF’s audited accounts for the financial year 2009 which would have been released by 30 June 2010.

Ultimately, the gist of the plaintiff’s case was that it would be in the defendant’s best interests for leave to be granted to commence a section 216A action against Huber and Christian. Not only was the action against Huber and Christian a necessary first step to compel both of them to disclose full details of SEF’s performance (the plaintiff argued that this was the only recourse that he and investors of the defendant and SEF had for uncovering the defendant’s and SEF’s true state of affairs), the plaintiff further argued that such action would force Huber and Christian to account for their alleged mismanagement of the defendant and SEF as well as their lack of disclosure to SEF’s investors and the defendant’s minority shareholders alike. It would also curb their alleged abuse of power and position which they held as the defendant’s directors and majority shareholders. The plaintiff had alleged that Huber and Christian appeared to be driven by an overriding determination to deprive the defendant’s shareholders and SEF’s investors of critical information which the defendant was obliged to disclose, as well as shut the plaintiff out of matters concerning the defendant and SEF, so as to retain full control over the defendant and SEF’s management.

The defendant’s case

In respect of the plaintiff’s three main allegations, the defendant had the following responses.

On the plaintiff’s...